VANILLA MARKET REPORT NO.46
In spite of a large crop in Madagascar in 2014, the global vanilla market remains extremely tight in terms of supply and surprisingly strong in terms of demand. Madagascar continues to enjoy a virtual monopoly over the trade as other vanilla regions such as India, Indonesia and Uganda continue to lag behind in terms of production. The expected softening of prices due to the aforementioned large 2014 crop in Madagascar never materialized. In fact, to the surprise of many, prices for vanilla beans have increased by almost 50% on industrial grades and 15-20% on gourmet or foodservice grades in the past 6 – 8 months. Later in the report we will try to explain why the market has veered so far of its projected course. First we would like to briefly evaluate the upcoming prospects for the major vanilla growing regions.
Indonesia
In Indonesia the vanilla market has stagnated for many years now and there are no signs of any changes in the near term. There are fewer and fewer exporters dealing with an estimated crop of around 150mt, for the most part low quality vanillas, targeting a specific industrial niche. With the recent market spike in Madagascar, Indonesian vanilla farmers and exporters are getting better prices for their lower grade beans as buyers seek to diversify. Perhaps this will be the incentive the famers need to plant more vanilla and increase production going forward.
Uganda
In 2014 vanilla production in Uganda was small, less than 50mt with mixed qualities. This area has been a big disappointment as by now vanilla production should have recovered given the attractiveness of the market. That has not been the case as the market remains in a state of disarray with virtually no government support on the ground and fewer and fewer players willing to make the long term commitment that vanilla farming requires. We expect much of the same for Uganda in 2015. A small production below 75mt, yielding a variety of grades. Quality will continue to be an issue.
Papua New Guinea
Although we had practically written this region off as far as vanilla production was concerned we have been seeing signs of recovery in the vanilla sector over the past months. There has been some support for the industry coming from Australia and New Zealand and although it is still early, vanilla production in 2015 may be on the rise. We still believe the overall tonnage will be well below 100mt, however if vanilla prices hold or improve Papua New Guinea is capable of ratcheting up production quite quickly. Tahitensis type vanilla from PNG has always been the most popular grade for both the industrial and food service sectors and this will be the dominate quality for future production.
India
Outside of Madagascar, India shows the most promise as far as increased vanilla production is concerned. However we will not see a significant impact before 2017. An aggressive campaign of vanilla cultivation has been going on since 2014 mostly in the states of Karnataka, Tamil Nadu and Mizoram. Furthermore India has been importing semi-cured vanilla from Madagascar recently to augment their overall vanilla production and make up for the short fall in Indian production. We expect Indian production to replace this in the years to come and overall production could reach 300mt by 2019. In the meantime we expect the combination of locally grown Indian vanilla and imported semi cured Madagascar vanilla to yield about 100mt – 125mt in 2015.
Mexico
Production in Mexico remains very small with local growers on their own, with no government support for the industry whatsoever. In 2014 less than 8mt of cured vanilla was produced in Mexico. This is expected to improve somewhat in 2015 with just over 10mt of cured vanilla produced. Gourmet quality vanilla is approaching USD 200.00/kg with industrial grades selling from USD 100.00 – 150.00/kg
French Polynesia
Production of Tahitian vanilla will fall in 2015…perhaps lower than 20mt over all. Only a very strong US dollar has kept the prices of Tahitian vanilla from broaching 250.00/kg. The crop is expected to recover in 2016. In spite of these prices demand throughout the food service sector and certain niche industrial areas remains strong.
Madagascar
The 2014 Madagascar crop, as expected, was almost double in size compared to the 2013 crop with estimates in size ranging from a low of 2200mt to a high of 2500mt.
Also, as expected, the quality was much improved compared to the terrible quality produced in 2013. (Although pockets of poor quality still exist due to the practice of vacuum packing semi cured vanilla in order to hold and sell at a later date.) Nevertheless, vanillin contents and flavor and aroma profiles have improved dramatically compared to the 2013 season.
What has been rather unexpected is the intensity and depth of demand right from the moment the crop came to market in October 2014. Today, 6 months later, demand has not abated and prices have increased by over 50% on industrial grade vanilla. There were those who actually expected prices to fall given the expectations of such a large crop. However from about the end of the 3rd quarter in 2014 it was quite obvious to anybody with experience in the vanilla trade that the exact opposite was unfolding. We feel there are two primary reasons for this divergence.
The most important was the very weak flowering for the 2015 crop which became quite evident by September in 2014. Immediately upon realization of this many buyers increased their purchases quite aggressively. As the flowering for 2015 continued to show weakness, buying on the ground intensified, in particular for industrial grade vanilla. The reasoning is simple. Major users of vanilla were looking to build inventory as much as possible in order to minimize their exposure to the 2015 crop which is not only expected to be small, 1300 – 1500mt, but possibly quite poor in quality. Although flowering finished strongly in December and January it is practically certain that farmers will pick the green vanilla long before maturation resulting in an immature crop and all the problems that accompany it. In fact there have already been reports of incidents of theft involving green vanilla in the Ambanje region in the north. Heavy rains during the first 3 months of the year helped speed up the maturation of the green vanilla somewhat. However in spite of this we still feel the opening dates for the harvesting of green beans must be delayed as much as possible in order to ensure a reasonable quality crop in 2015. Unfortunately we feel the likelihood of this happening to be remote.
The second factor would be the depletion of speculative inventories all over the world which over the past few years have helped to defer the rebound and recovery of vanilla prices.
These lots of vanilla, which at one time exceeded 2000mt, acted as a buffer against any sudden spikes in prices. Many buyers remained partially or even completely anonymous to the market as a result of these excess inventories. The depletion of these lots combined with what was happening on the ground in Madagascar created a “perfect storm “scenario. Given the poor production in alternative growing regions almost all vanilla buyers have been forced to consolidate their purchases in Madagascar once again.
Black or gourmet vanilla did not see the extreme price increase of industrial grade beans but this may change with the 2015 crop. The tendency is not to store black vanilla over the long term given the higher moisture contents and stability issues. Although demand for black vanilla is steady, it is nowhere near the same levels as industrial vanilla. As a result the spread in prices between the two qualities can be as high as 50%, it is now closer to 20% or less. 2014 produced a far superior black vanilla product. If 2015 turns out to be the immature crop we expect then we may see black vanilla bean prices, quality and availability impacted far more severely than they were by the 2014 crop.
Sustainability concerns with the Madagascar vanilla crop continue to be defined as end users look for ways to ensure that there are perceived as doing the right thing as far as their procurement practices are concerned. Our position remains unchanged. As long as prices for vanilla remain equitable, which we believe has been the case for the past 2 seasons, all participants in the supply chain, especially vanilla farmers, will benefit and the industry will grow. Of course as soon as supply exceeds demand, and this could still be several years away, prices will fall. The question is how far, and will we find ourselves in the same position as 2006 – 2011 when vanilla prices were unsustainably low. In the past we have talked about the need to enforce the existing regulations regarding labeling for food products containing natural vanilla and standards of identity for natural vanilla flavors. At one point it was hoped that FEMA, The Flavor and Extract Manufacturers Association, would take a more pro-active position on this issue and had suggested these regulations be advertised in a major trade publication in order to increase market awareness. Sadly nothing ever materialized and FEMA has been forced to retreat rather meekly due to internal squabbling and pressure from members who take an opposing view on the issue of what constitutes a natural vanilla flavor. We believe until this issue is resolved and usage of natural vanilla beans as an ingredient properly defined, the livelihoods of the vanilla farmers of Madagascar and other origins will remain under threat.
The organic vanilla sector in Madagascar has been subject to some rather unexpected pressure due to the discovery of the insecticide Permethrin in cured vanilla beans. Permethrin is a class 1 Pyrethroid used to control mosquitoes and other pests. The levels found in vanilla were higher than .02/ppm which is the maximum tolerance allowed for organic vanilla beans. Tolerances for human consumption in general are much higher. Ironically the Permethrin has been traced back to the mosquito netting kits that have been handed out all over Africa and now Madagascar by the Bill and Melinda Gates foundation in their drive to eradicate malaria. The mosquito nets are treated with Permethrin. The Malgache, ever so resourceful, are using the nets for other purposes which include fishing, chicken coups and of particular interest, for soaking the green vanilla in hot water at the onset of the curing process. Between this and the excessive handling and manipulation required for curing vanilla it is not hard to see how the contamination is occurring. We believe exporters who need organic vanilla will be forced to dry the green vanilla themselves in order to gain better control of the process. To date Permethrin levels have been just slightly above the allowable tolerance for organic vanilla but well below levels allowed for conventional vanilla . The manufacturing process for vanilla extracts should bring these levels well below the allowable organic tolerance of .02/ppm. However manufacturers working with organic vanilla from Madagascar would be well advised to test their finished extract products just to be certain. It is a quick, inexpensive and can be done by any reputable testing laboratory. There is a wealth of information about Permethrin available at www.epa.gov. Just key the word Permethrin in the search window and thousands of pages of information will appear.
Conclusion
It is very likely that worldwide vanilla production will fall short of demand in 2015 so pressure will remain on prices. We have already seen the price for industrial beans triple and foodservice double in the past 3 years. Although this may seem severe to buyers, vanilla prices have simply recovered from the 2006 – 2011 period when prices were absurdly and unsustainably low. Historically speaking today’s prices for vanilla are quite reasonable and one could even argue inexpensive since 30 years ago they were in the same range. Given the projected shortfall in production there is still plenty of room for further increases if demand does not abate somewhat. As was the case in 2014 all eyes will be on the flowering for the 2016 crop which should commence by August/September of 2015. Given all of the vanilla planting on the ground in Madagascar since 2012 and the fact that 2015 is a small crop all sign are pointing towards an abundant crop in 2016…although it is extremely early to make such projections.
If flowering is very strong this fall this could temper prices somewhat. Furthermore, we do expect vanilla production in other growing regions to start increasing in 2016. Nevertheless vanilla availability will remain tight for at least 16-20 months with potential quality issues in Madagascar this season. Buyers should secure what they need but we would caution against excessive “inventory building”.
As we have just seen it is very difficult to accurately predict vanilla price movements. This keeps the playing field level and is one of the major benefits of an open and free market.
Quality will be an issue again in 2015 but hopefully not as bad as 2013. If prices continue to be sustainable, as they are now, we are confident that quality will gradually improve over the long term.
Thank you.
Aust & Hachmann (Canada) Ltd
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